counterfeit risk mitigation 06 21 2011 (2)

Counterfeit Risk Mitigation

Bob Braasch, Sr Director Technical Support, IHS

June 22, 2011

Copyright © 2011 IHS Inc. All Rights Reserved. 2

Dynamic Nature of Supply ChainsSupply chains operate in the dynamic context of external forces…

Material Mfrs.

Component Mfrs. Product Mfrs.(OEMs and EMS)

End Users

Supply

Products

Components

Demand

Materials

Product Trends:• Technology• Features• Cost• Energy Efficiency• Competitive

Dynamic Context

Regulations:• RoHS• Export• REACH• Conflict

Minerals

Part Trends• Technology• Demand• Supply• Obsolescence• PCNs• Counterfeits

Economy• Market volatility• Product demand

Unique MarketTrends & Pressures• A&D• Consumer• Medical Dev.• Telecom

Supply• Natural Disasters• Raw Materials

Costs• Supply• Energy and Shipping costs

Corporate Product Stewardship

http://images.google.co.uk/imgres?imgurl=http://www.pcbmanufacturer.info/images/circuit_board/circuit_board_250x251.jpg&imgrefurl=http://www.pcbmanufacturer.info/result.php?Keywords=Pcb%20Manufacturer&usg=__4e1nPAeXePs7BvYf5jFKMx8vbZ0=&h=251&w=250&sz=23&hl=en&start=16&um=1&tbnid=6FVaenI13NcdzM:&tbnh=111&tbnw=111&prev=/images?q=pcb+manufacture&hl=en&rlz=1G1GGLQ_ENUK330&um=1

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http://images.google.co.uk/imgres?imgurl=http://www.cumulus-soaring.com/lx/LX-Cable-PC-700x.jpg&imgrefurl=http://www.cumulus-soaring.com/lx.htm&usg=__xpnrMjD4wZte3CGwd6oW5wArWAY=&h=433&w=406&sz=44&hl=en&start=20&tbnid=5MM1bVsW_T92hM:&tbnh=126&tbnw=118&prev=/images?q=PC+connectors&gbv=2&hl=en&sa=G

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IHS Design & Supply Chain SolutionsParts, Materials and Environmental Offerings

Part Search & ResearchBOM Analysis• Lifecycle• Availability• Compliance• Counterfeits• Alternate

Parts

EOL / PCN Alerting and Management

Counterfeit Part Risk

ManagementSupplier Risk Management

Compliance and Lifecycle tracking for

parts outside reference

databases

Product Regulation Tracking

Electronics Supply Chain Analysis• Teardown• Compone

nt Price Tracker

4DOnline Products

Regulation Tracking

Content Services

ERAI CounterfeitsPCNAlert

Parts Universe & BOM Manager

Teardown, Price Tracker

PCNAlert: acquired 2007ERAI (exclusive): partnership

2011

EIATrack: acquired 2011iSuppli: acquired 2010


Obsolescence & Counterfeit Correlation Where we see Counterfeits we see Discontinued Parts

ANALOG IC

CAPACITOR

Conne

ctor

Consu

mer

IC

DIODE

Electro

mec

hanic

al

INDUCTOR

INTERFACE IC

LINEAR R

EGULATOR

LOGIC

IC

MEM

ORY IC

MIC

ROPROCESSOR IC

OPTOELECTRONIC

S

Oscilla

tor

Part N

umbe

r Only

PASSIVE F

ILTER

PROG LOGIC

IC

RESISTOR

RF/Micr

owav

e Com

pone

nts/

Mod

ule

SENSOR

TELECOM

/DATACOM

IC

TRANSFORMER

TRANSISTOR

TRIGGER D

EVICE

0

100

200

300

400

500

600

700

800

Obsolescence associated with Identified Counterfeit Parts

Sum of # of Counterfeit Parts Sum of # of Obsolete Parts


“The presence of counterfeit electronic parts in the Defense Department’s supply chain is a growing problem that government and industry share a common interest in solving.”

Carl Levin, D-Michigan, and Sen. John McCain, R-Arizona

March 2011

Congress Investigation LaunchedMarch of 2011 top senators launch investigation

Senate Armed Services Committee is seeking information from defense contractors and subcontractors regarding the extent of suspect counterfeit electronic parts…

• Spreadsheet listing each suspect counterfeit part identified in 2009 & 2010 intended for use by DOD…

• Policies related to record keeping, handling, reporting & disposition of suspect counterfeit electronic parts…


Manufacturers ResponsibilityFake Parts in U.S. Military

• June 16th 2011, CNN broadcast

• Counterfeit parts impact 40% of Pentagon’s Supply Chain according to U.S. Commerce Dept study

• Senator Brown (OH) recommends DOD cancel supplier contracts when counterfeits are found in their supply chain http://www.cnn.com/video/#/video/bestoftv/2011/06/16

/exp.nr.seg.fake.military.parts.cnn?iref=allsearch

http://www.cnn.com/video/#/video/bestoftv/2011/06/16/exp.nr.seg.fake.military.parts.cnn?iref=allsearch

http://www.cnn.com/video/#/video/bestoftv/2011/06/16/exp.nr.seg.fake.military.parts.cnn?iref=allsearch


Costs can be ExtremeHard & soft costs add up

• Hard costs in millions are not uncommon

• Unrecoverable supplier payments

• Entire product immediately taken off line or out of service

• Soft costs can include

• Brand damage

• Product rollout delays

• Rework delays

• Urgent reprioritization

• Possible loss of life


Industry Standards & ReportsNew & updated standards expected in 2011

IDEA 1010B update • Standard for electronic part

inspection• Released April 2011

AS5553A update intended for OEMs• Expected in balloting by end of 2011

AS6171 intended for Test Providers• Standardize practices to detect

counterfeits & ensure consistency of test techniques

• Expected in balloting by end of 2011

AS6081 intended for Distributors• Counterfeit avoidance requirements• Currently in balloting

• ARP6178 tool to access counterfeit risk of Distributors

• Expected in 2011

SAE AS5553 issued April 2009


Where does it come from?E-Waste

• The vast majority of product being sold in the China Open Market originates from e-waste.

• Unknown quantities of e-waste are exported from China to component buyers around the world.

• Nearly 75 million dollars in revenue is generated for the local Chinese Government in the city of Shantou alone.

• What incentive does the government have to control the import or export of this product?

• Much of the e-waste is remarked and counterfeited.

• Most of the distributors operating in and around Shenzhen have no experience in handling, storing or selling electronic components.


Source: % of reported counterfeits from ERAI, 2004 to present

What’s Being Counterfeited?All types of components are being counterfeited, even passives...


Industry Standards & ReportsGIDEP and ERAI are the counterfeit reporting entities

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*0

100

200

300

400

500

600

700

800

900

1000

ERAI

GIDEP

Component Mfrs

Others

Yearly Counterfeit Reports by Source

Counterfeit Reports by Source 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*ERAI 0 1 7 21 234 479 490 942 603 314 571 476GIDEP 0 1 4 8 10 16 18 30 15 19 247 13Component Mfrs 0 0 0 0 0 0 0 0 0 2 6 0Others 0 0 0 0 0 0 0 98 98 442 44 0

Source Total PercentERAI 4,138 79%GIDEP 381 7%Component Mfrs 8 0%Others 682 13%

As of May 12, 2011


Exclusive Partner to Only IHSOne provider of counterfeit alerts and supply chain risk mitigation

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Who is ERAI Inc?

• Founded in 1995

• ERAI is an information services organization that monitors, investigates and reports issues affecting the global electronics supply chain

• ERAI provides tools to mitigate risks on substandard parts, counterfeit parts and vendors

• Subscribers include OEMs, CMs, Distributors, OCMs, government agencies and industry associations

• Founding & active participant in SAE International G-19 Counterfeit Electronic Components Committee and several sub-groups


How Risk Enters Your Supply Chain Intended and unintended ports of entry for counterfeits

1. Many unsafe part & supplier “sources”

• Online Broker Search Engines

• Ease & convenience of Googling potential valid parts

• Engineers who make maverick purchases

2. Counterfeit Suppliers have large audience of clients

• Professional looking websites

• Rapid access to millions of parts

• Minimal supplier validation

• Quick & easy access to a large audience of buyers

Request for QuoteRequest for Quote

Request for Quote…………

Request for Quote


15

But No Supplier is Immune from RiskLack of accountability and traceability allows counterfeits to enter

“It is not uncommon, however, for authorized distributors to purchase parts outside of the OCM supply chain in order to

fulfill customer requirements – 58 percent purchase parts from

other sources.

Specifically, 47 percent of authorized distributors procure

parts from independent distributors, 29 percent procure

from brokers, and 27 percent procure from Internet-exclusive

sources.”

Source: U.S. Department of Commerce, Office of Technology Evaluation,Counterfeit Electronics Survey,

November 2009.


Best Practices to Avoid RiskStay Within Your Trusted Supply Chain

1. Buy direct from the Factory

2. Purchase from Approved Vendor / Manufacturer

3. Procure from Franchised and Authorized Sources

4. Leverage only Approved Independent Distributors• ERAI Members

5. Validate Parts and Sources• Aftermarket Sources• Alternate Parts• Leverage U.S. Government QML/QPL• Leverage other qualifying authorities

Test appropriately Contractually define your expectations..


How do IHS and ERAI help?Market Intelligence to Mitigate Counterfeit Risk

AUTHORIZATION REQUIRED

AUTHORIZATION REQUIRED

ERAI notices GIDEP notices


Example: Infineon BTS716G Alerts are accessible via the IHS product


Example: Infineon BTS716G Customers alerted to counterfeit incident

• Subscribers of IHS 4DOnline BOM Manager, COMET, and Parts Universe have access to alerts from ERAI, GIDEP, and other sources.

• Subscribers to the IHS-ERAI solution provides ERAI membership, giving them access to ERAI’s comprehensive market intelligence community, tools, and services.

Alert!


Provides Access to Complete DetailsMembership provides comprehensive market intelligence


Example: Rockwell R6502APReported Parts Detail


Example: Rockwell R6502APAll Available Images, Test Reports, Inspection, etc.


Ability to View Supplier Report CardExample


Example: AAOK ElectronicsPast due invoices, wire fraud, faulty product for example…


View Real Stock on Available PartsLimit risk exposure from fake sources and price games


BOM Risk Analysis & Monitoringvia ERAI BOM Scrubber


BOM Analysis: Risk IdentifiedProvides counterfeit details on your BOM


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Questions?


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Appendix


Access to Counterfeit IncidentsOver 10 years of counterfeit part and supplier report history

counterfeit risk mitigation 06 21 2011 (2)

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